Gold prices: The euphoria that marked gold’s spectacular rally has clearly eased off, as the bullion is trading almost 8% below its all-time high levels in the international market. Back home, too, the trend is similar, as gold prices have moderated around 9% from their recent peak.
Against this backdrop, the volatility in gold prices has also eased. The Gold Price Volatility Index hit a peak of 31, which coincided with the latest top made by gold. However, since then, it has declined to 21.5%.
But could a further fall indicate that the gold is entering a period of consolidation?
Well, gold is notorious for entering long phases of consolidation. There are times when the bullion doesn’t see movement for years. Now, with the volatility easing, the concerns are rising that gold — which has been in an upward trend since the pandemic — could be entering a lull period.
What does easing gold volatility signal?
The softening in gold volatility typically points to a consolidation phase, as per experts. During this period, prices could remain range-bound. With implied volatility now back near long-term averages, the market appears to have priced in most major events, said Harshal Dasani, Business Head, INVAsset PMS.
He believes that such a drop in the volatility index indicates traders now expect narrower price swings ahead, suggesting the market has absorbed recent macro shocks — from rate cuts to geopolitical tensions — and settled into a more balanced sentiment. “A continued fall in GVZ would imply that investors see current gold prices as fair value, with limited near-term catalysts to drive large moves either way. However, historically, extended periods of low volatility can precede sharp directional shifts once a new trigger emerges,” he added.
Ross Maxwell, Global Strategy Lead at VT Markets, sees a fall in the volatility index signalling gold has entered a period of consolidation, awaiting fresh triggers. Progress on trade diplomacy and steady policy signals will likely act as the next catalysts.
“Investors are closely watching whether renewed trade negotiations between the US and India, and ongoing US–China discussions, which can shift the metal’s momentum once more,” he added.
Does this mean that no bounce-back is likely in gold?
However, stability in volatility doesn’t always translate into stability in prices.
Compressed volatility often acts like a coiled spring, setting up the next big move when new data or policy shifts hit the market, explained Dasani, even as he expects gold to trade in a tighter range unless inflation surprises or geopolitical risks resurface.
How to trade gold?
With an absence of near-term catalysts to drive a gold price rebound, a cautious and balanced approach to investing would be more constructive. Maxwell said that ideally, investors should take a buy-on-dips approach given gold’s resilience amid uncertainty.
“If negotiations falter or global instability deepens, gold could break higher beyond the $1,409.96 resistance. Conversely, credible breakthroughs in trade talks could strengthen the USD and reduce the appeal of gold, keeping prices in check,” he noted.
With volatility moderating, gold is best viewed as a strategic hedge rather than a trading asset, as per Dasani. He advised a core holding in physical or gold ETFs as they provide portfolio stability amid global shocks. He added that limited tactical exposure through options can help capture any breakout if volatility resurges.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
